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SME Clusters Development

As the backbone of private sectors in most economies worldwide, Small and Medium Enterprises (SME’s) have always been a major focus for the United Nations Industrial Development Organization (UNIDO).

As part of UNIDO’s activity in Iran, we launched a three-year pilot project to develop three SMEs clusters.

UNIDO benefitted from the active support of the Small Industries and Industrial Parks Organization (ISIPO), associated with the Ministry of Industry and Mines, now Ministry of Industry Mine and Commerce.

The Role of SME’s in the Iranian Economy

A recent study undertaken with the cooperation of UNIDO shed light on the significant role of SME’s as employers of more than 63% of the total manpower in Iran’s industrial sector. The study also showed that more than 98% of all businesses are micro enterprises with 1 to 9 employees.  However the same studies reveal the inefficiencies of such micro enterprises when compared to medium sized companies.

Medium sized enterprises worldwide typically account for a large proportion of a country’s export volume however, as in Iran they accounts for less than 0.1% of the total number of enterprises they do not make a significant contribution to the exports.

The potential of small businesses to grow and having an impact on the economy is hampered by their isolation as well as lack of a coordinated institutional support.  They typically have limited market awareness and bargaining power, which in turn limits their ability to achieve economies of scale.

As a natural consequence of such limitations and due to a variety of reasons SME’s tend to gather in geographical concentrations or “clusters” over time as their business grows.

UNIDO SMEs cluster development project sites

The project focused on three SMEs clusters in Lalejin’s ceramics industry, Varamin’s leather industry and the Tabriz auto component manufacturing industry.  Altogether, these three clusters accounted for over 2,500 enterprises.  

Objectives

The project aim was to support the development of the SMEs sector in Iran by introducing and diffusing a variety of internationally successful practices to enhance the collective efficiency of the selected SMEs cluster. These practices include:

  • Benefit from common opportunities and overcome common weaknesses by taking advantage of external economies.
  • Promoting specialized, technical, managerial and financial services.
  • Creating a favorable ground for the development of inter-company cooperation.
  • Cooperation among local institutions to promote local production, innovation and collective learning. 

The UNIDO Approach

In order to maximize the effect of its initiative and ensure continuity, UNIDO’s methodology is based around a concentration of effort on SMEs clusters.  These are groups of businesses which are operating in geographical agglomerations, either as competitors or as affiliated businesses providing essential products and services for the core activity of other SME’s. The methodology aims to enhance the productivity and collective efficiency of such clusters by promoting increased collaboration and networking between the various stakeholders.

Drawing on a vast pool of field experience in more than a dozen companies in Latin America, Africa and Asia over the past decade, UNIDO has developed a highly effective methodology of initiating successful interventions aimed at fostering cooperative relations within the SMEs clusters.  The core of the approach is to remove isolation and promote goodwill within SMEs clusters through increased interaction and networking.

Article 80 and 150 of Iran’s 5th National Development Plan (2011-2015), approved by the parliament, is one of the successes for cluster development in the country which is a result of cooperation between the organizations involved, the policymakers and parliament members, and the National Programme Officer (NPO).

The establishment of Asia Business Cluster & Network Development Foundation (ABCD Foundation) as a non-governmental institution, under support of UNIDO, resulted in a faster movement towards institutionalizing the achievements. In this regard, information is available on www.abcdfoundation.com.          

By the conclusion of the UNIDO Cluster Development Program (end of August 2010) 53 cluster development projects were initiated across the country by ISIPO affiliated provincial companies, and a number of projects were planned to be ended in a few months.